View from NEW YORK America's aircraft giants slow to stalling speed

Confidence is at a low altitude for Boeing and McDonnell Douglas. David Usborne looks at the industry's problems

Test flights for the new Boeing 777 wide-body jet were brought to a halt earlier this month after one of the prototype planes unexpectedly depressurised at high altitude and was forced to dive steeply, giving two members of the crew a case of the bends.

The trouble was traced to a faulty air valve. The problem was corrected and the test programme resumed in the middle of last week. Boeing as a whole, though, appears stuck in its own dramatic downward glide.

At the start of this month it announced plans to lay off another 7,000 of its workforce, on top of the 25,000 it has already shed in the last three years. Production rates are also to be scaled back.

Even more vivid was the news last week from Boeing's main North American rival, McDonnell Douglas, that it may be obliged to suspend production of its 300-seat MD-11 jet for a part of next year unless orders pick up quickly. This would be a heavy blow to the McDonnell Douglas workforce at the Long Beach plant where the MD-11 is assembled.

The plane makers continue to be hit by the troubles of the airlines, upon which they naturally depend for orders. But even as recently as last December, Boeing's chairman, Frank Shrontz, was telling his workforce that the worst was probably over. "We hope we're bumping along the bottom," he suggested. "It's clearly been a challenge and a difficult market environment."

But the bottom, it seemed, had not been reached. Since the new year, cancellations and deferments of orders have been presented to Boeing by several important carriers. USAir, part-owned by British Airways, deferred the purchase of eight 757 aircraft that had been down for delivery in 1996. Continental asked for delivery delays that alone will reduce the flow into Boeing's coffers by $4bn. Air France also put back its delivery dates.

Even so the scale of the latest cuts at Boeing has taken most analysts by surprise. As well as implementing the additional lay-offs - 9,305 jobs at Boeing were eliminated during 1994 - the company announced that production of the 737, the workhorse of many airlines, would be trimmed from 8.5 to 7 per month.

The worsening outlook was acknowledged by Mr Shrontz when the latest cuts were announced. "The job reductions are higher than we anticipated just a few weeks ago," he said. "Since the beginning of the year, several customers came to us asking to postpone deliveries because of the continued softness of the airline industry."

Much more drastic, however, is the prospect of McDonnell Douglas having to mothball production of the MD-11, its premier product that competes in the wide-body market with the Boeing 747 and the A330 and A340 models of Airbus. Company officials insist that suspending production remains a last resort action, but one that nonetheless may not be avoidable.

The outlook for the MD-11 does not look good. Deliveries have dropped 60 per cent in two years, from 42 aircraft in 1992 to only 17 last year. As the order book looks now, the company may not do any better than to sell 10 next year.

The company has been let down especially over a promise of large orders from Saudia, the Saudi Arabian carrier. Last year, President Bill Clinton announced that orders worth $6bn had been pledged to US companies by the Saudis, to be split between Boeing and McDonnell Douglas. It was thought the deal would include 11 of the MD-11s.

The entire package now seems to be in doubt, however, with Saudia facing financing problems.

Robust competition from the two Airbus models meanwhile adds to the problems at McDonnel Douglas. While the American manufacturers continue to scale back, Airbus chairman Jean Pierson reported recently that he expected overall sales by the European con- sortium to hold steady this year, with deliveries expected to reach 123 aircraft, the same as in 1994.

The long-delayed upturn in orders may yet come, however. Looking ahead to what they hope will be better times, Boeing officials point to the overall growth in air traffic of 5 per cent last year, with a strong surge in Asia and especially in China.

And for the first time in several years, some of the main airlines have returned to the black.

According to one Wall Street analyst, Boeing may even have overdone its cuts. "Boeing tends to be too pessimistic at industry troughs and overly optimistic at peaks," he said. "We believe that what is happening is that the weakest airlines, in reviewing their financial outlook for the year, are cutting deliveries, while the stronger airlines have not yet placed new orders. Consequently, the short-term news is really much worse than the underlying industry fundamentals suggest."

If Wall Street is right, the American aircraft industry may yet be about to pull out of its spin. When it does, Mr Shrontz and others may, like the crew of the Boeing 777, get a slight case of the bends - but nothing that a few hefty orders won't quickly cure.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test